Schlumberger warns of oversupplied U.S. land market

HOUSTON — A sluggish and oversupplied North American land market likely will constrain prices for oil field equipment and drilling rigs this year, Schlumberger's CEO told investors Friday — a potentially bad sign for balance sheets in the services industry.

But the company has found relief where smaller, U.S.-focused companies may not: A burst of drilling in Saudi Arabia and much of the Eastern Hemisphere lifted Schlumberger's fourth-quarter net income 28 percent past the same period in 2012, the company reported Friday, kicking off the fourth-quarter earnings season for the oil field services industry.

The fortunes of the world's largest oil field equipment maker and every other oil field service company rest on how much oil and gas producers spend on harvesting hydrocarbons, and apart from Middle Eastern and Asian markets, many forecasters see a bleak 2014.

Schlumberger and other companies that make money selling equipment to oil producers are “going to be looking at a slower growth environment over the next two years than is generally appreciated,” said James Crandell, an analyst with Cowen & Co., which expects global exploration and production spending to rise just 4 percent in 2014. That's a hair lower than Schlumberger's prediction of 6 percent.

But Houston-based Schlumberger's reach into vibrant drilling regions such as the United Arab Emirates and a resurgent deep-water business in the Gulf of Mexico could ease the slog through a market choked on an oversupply of rigs and equipment. Schlumberger — with principal offices in Houston, Paris and The Hague — said Friday its net income reached $1.8 billion and its revenue increased 7.5 percent to $11.9 billion in the fourth quarter.

A handful of Middle Eastern markets pushed the company to record international revenues at $3.2 billion, up 18 percent, and a surge in U.S. offshore drilling boosted Schlumberger's Gulf of Mexico haul by a similar 18 percent. Onshore, though, the market is tighter.

“The main challenge is still pricing, and we saw further downward pressure” on daily rig rates and equipment pricing in the fourth quarter, Schlumberger CEO Paal Kibsgaard said during a conference call with investors Friday. “There is still a significant oversupply of horsepower, and we don't expect that to change. I think we'll see more of the same in North America” in 2014.

Still, Schlumberger's overall North American revenues rose $400 million in the fourth quarter on increased technology sales and market share gains. And the company expects to pick up customers in hydraulic fracturing technology and to grow its artificial lift sales after making key acquisitions in 2013, Kibsgaard said.

While Schlumberger has a hand in every corner of the energy industry, it's not exactly a bellwether for the oil field services sector. Its international scope and diverse product lines make it hard to compare to smaller companies and even large rivals, making it well-positioned to capitalize on a slow recovery in the North American market, said Judson Bailey, an analyst with International Strategy & Investment Inc.